photo credit: iLoveMountains.org

With this weeks poll showing that many Australians were undecided on the Super Profits Resource Tax, they are effectively saying ‘please sir, tax me’. ‘No I wouldn’t think of ensuring that the privileged pay their fair share, please I emplore you – tax me!’.

With 20 leading economists coming out in favour of the tax (thxs John Quiggan), the muted response by the Australian public really does warrant an education program.

Ross Gittins is on the front foot (watch video in 2nd link above) with the call that what mining supremos like Tom Albanese are really fearing is the global trend this could trigger. They fear the Brazil’s, China’s and South Africa’s following suit. With the Henry Review targeting the pot of gold at the end of every privatisation rainbow – economic rent in land, in minerals, in taxi licenses, in pokie licenses, the business elite are throwing everything they can against this government.

Read some of our responses to this debate and FIRE up – we need you on the comments pages of the Murdoch press:
RPSTing Australians and their Mineral Resources – Bryan Kavanagh’s new piece in Online Opinion
Levelling the Playing Field

With Australia’s reputation as an economic fighting machine in having avoided the worst of the GFC (really?), Wayne Swan’s upcoming visit to the G20 will be a revealing affair.

Will the world’s leaders give support to Swan when the finances of so many countries are decrepit because of their outdated tax system in an age of tax havens and resource scarcity?

This Swan tour to China & the Korean G20 meet will be one the government is hoping will elicit support for the move to untax enterpreneurship and capture some of the naturally increasing scarcity rents that accrue to natural resources and natural monopolies.

In another piece of mining fearmongering, the head of Australia’s largest goldminer, Ian Smith of Newcrest said that the SPRT is ‘a tax on our grandchildren’ (AFR 0306, p5). This is outrageous when considering that he is proposing a lower a tax on NET PROFITS. He is effectively saying tax the working classes more so that we miners can remove these non renewable resources and profit from them at great extent. What will be left for the grandchildren Ian?

For mining to slow down a little would be a good thing, especially with China’s shaky economic outlook.

The mining elite’s hired gun – Opposition leader Tony Abbot – said recently that the SPRT will increase the price of food. The SPRT cannot be passed on because miners in other countries have different cost structures. Competitors can undercut any price that Australian based mining companies offer.

The only place this additional SPRT tax can come from is by taking some of the profits from magnates (like the 2nd richest man in Oz Andrew Twiggy Forrest) and giving them to the government.

Who would want to grow up to be a doctor when so many are making a killing from simply digging up the earth?

We must re-balance the playing field.

photo credit: BK59

Last night saw the media highlight two essential points. On the same day that BHP announced it’s fifth consecutive record profit of $17.8 billion for the year, 4 Corners discussed how high land and housing prices in the mining town of Port Headland were strangling the community.

Both media pieces overlooked the fundamental role of the community in creating the value that naturally accrues to natural resources. Over the last 5 years of record profits for BHP, the ratio of royalty related payments to dividends has averaged 50.6%. In 2003 shareholders received 61% more in dividends than all tiers of government from resource rents. It was around this time that BHP CEO Chip Goodyear chided the business community with comments like ‘Our hard work has paid for your tax cuts’. In 2007 the community received 56% of the amount paid to shareholders. Why should shareholders get more than the rest of the community?

We ask here whether so called owners of resources are entrepreneurial geniuses or just extremely privileged to benefit from the gifts of nature? For that reason, Government should have the courage to withstand the criticism to any changes in royalty rates. Since when did mining companies and land developers become royalty? Why should mining companies have the right to demand meetings with government to ‘negotiate’ what it will pay?

Port Headland demonstrates the danger of allowing what is technically known as economic rent to accrue in land prices. Watch 4 Corner’s The Money Pit: A Boom town running on empty and put the 2 + 2 we discuss here together.

Ask yourself – does it make sense for millions to be made in the region and for little to be given back to the community that makes it all possible? Why do land prices appreciate faster than wages? How can we ensure that the fundamental human right, the right to a roof over our head, isn’t subverted by land prices?

Land prices are no longer reflective of what can actually be earnt off the land. Land banking speculators understand this. A quick look on google earth sees that there are vacant blocks of land in Port Headland. Withhold supply, maintain scarcity, push up prices. Builders can afford to drip feed the new buildings to the market, always ensuring that demand is greater than supply.

Enter 2 Monks Pl, Port Headland into google earth and you can see that the capacity is there. Maybe there aren’t enough builders. Surely if houses are going for $1.5 million then their wages could be paid? The problem is the rents. Astute land investors/ speculators understand that demand is high for locations where $100 000 – $200 000 p.a can be earnt. With no other alternative place for the wage earner to live, they must pay the asking price for housing or move to the shanty towns. When no competition is possible, land monopolists are free to charge the exorbitant rents that are chasing locals out of town. This is the Law of Rent in action.

BHP announces record profits, largely earnt in the Port Headland region, but the workers struggle to pay rents. Sound sensible? Land monopolisation of rents ensures this trend continues. Wage earners are guaranteed to never get ahead under the rules of today’s economic system.

If instead the community earnt a share of the land rents, then such speculative power would no longer be possible. Land rents could replace taxation as a revenue source, ensuing the community gets it’s share in the naturally increasing land prices. All land would then be used efficiently. Land hoarding would not be viable, putting downward pressure on prices. Yearly land valuations would see that land rents are charged upon what can be earnt off the site, rather than what one speculator can convince another to pay.

Those households living closer to prime/ new infrastructure would pay comparatively more than those on the periphery. It makes sense for those close by to pay more in respect for this service. The BHP rail yard would obviously pay a larger land rent in respect for the income that such a facility makes possible. Together, these forces give the local government more revenue to finance infrastructure whilst simultaneously providing the ability to keep land prices at earnable, responsible levels.

photo credit: megananne

Here we go again! The Reserve Bank is worried it raised interest rates too high. Is that what has caused this downturn?

The real cause of this looming recession is the rampant over investment in land. This has pushed land prices to double the long term average in Australia, at 6.6 times the average wage, rather than than the 3.3 long term average.

The further this divergence is maintained, the uglier this downturn will be. Fannae Mae type bailouts will not help. To answer why, we return back to elemental economics. The more we spend on rent to meet these high land prices, the less is left for investment and consumption. This flows through to a reduction in job opportunities and the closing of small businesses. Wages often fall as business struggles to meet its’ rental obligations. Properties are then foreclosed. Tears are shed. This happens repeatedly, approximately every 18 years. Read Fred Harrison’s Boom Bust to explain why.

Rental payments need to naturally fall back to the long term average of 3.3 years average wage. We can only live on easy credit for so long. Prolonging land prices at their current highs, like the Japanese tried to in the 90′s, will only prolong the recession. Let the market work it out.

Of note is also how the Reserve is in the process of changing its’ focus away from an ‘inflation only’ perspective. Tim Colebatch says:

And the Reserve does not want to create a recession, mild or not. The statement subtly redefines its goal as not low inflation, but “sustainable growth consistent with the medium-term inflation target of 2% to 3%”.

Read what our Bryan Kavanagh said about this ‘inflation only’ mantra here in Property Bubble Leads to Crash Landing. Bryan’s excellent Rating Federal Treasury’s Performance should also be digested when considering the trade-off between inflation, unemployment and the elephant in the room – land prices.

It must be clearly maintained that this recession-to-be was not caused by the sub-prime. Nor was it caused by high interest rates. Unfortunately, it will be caused by the absence of holding charges on land, which has allowed high land prices to fester. This has attracted a large number of speculators, all greedily chasing the easy money, called economic rent, that the community’s activities always deliver to land. Land values reflect the community’s hard work in the higher prices that naturally gravitate towards it.

We believe that this natural increase in land prices should be captured on behalf of the community by the government via a Resource Rentals system. Then we address at source the boom bust nature of the neo-classical economic paradigm.